Share it

In this post, Romina Rivero and Elizabeth Lombardo of CMS preview the decision awaited from the Supreme Court in Canada Square Operations Ltd v Potter [2021] EWCA Civ 339. The appeal was heard by the Supreme Court on 14 and 15 June 2022, but the judgment has not yet been handed down.

 

Background

This case concerns the meaning of the words deliberate concealment for the purposes of s 32 of the Limitation Act 1980 (“LA 1980”).

S 32(1)(b) LA 1980 postpones the start of the limitation period until the claimant has discovered, or could with reasonable diligence have discovered, the deliberate concealment of a fact relevant to their right of action.  Clearly, if deliberate concealment is established by the claimant, their claim could be viable for a lot longer than the usual (primary) limitation period.

In the upcoming decision the Supreme Court will explain the extent of knowledge required for any concealment to be regarded as deliberate – in particular, whether recklessness is enough. It will also consider whether concealment only applies if the defendant breached a legal duty to disclose.

 

Facts of the case

In 2006, Mrs Beverley Potter entered into a regulated loan agreement with Egg Banking plc (which later changed its name to Canada Square Operations Ltd, “Canada Square”). At the same time, Mrs Potter also took out insurance under a payment protection insurance policy (the “PPI Policy”) with an insurer in the AXA group . Canada Square undertook two roles in its relationship with Mrs Potter: first, it was the lender of the money to Mrs Potter and, secondly, it was the insurance intermediary between Mrs Potter and AXA.

Mrs Potter was not told that 95.24% of the policy premium for the PPI Policy was paid to Canada Square as its commission on the sale of the PPI Policy. Mrs Potter complained to Canada Square and she was compensated. However, Mrs Potter did not consider this fully compensated her and subsequently, on 14 December 2018, issued proceedings against Canada Square to recover the balance of the sums she had paid under the PPI Policy.

The claim was brought under s 140A-D of the Consumer Credit Act 1974 (“CCA 1974”) and alleged that the relationship between the parties was rendered unfair by the fact that Canada Square had not disclosed to Mrs Potter the existence or amount of the commissions it had retained.

Canada Square accepted that it had not disclosed the commission but averred that the claim was time-barred under s 9 LA 1980, as it was issued more than six years after the loan agreement terminated.

In turn, Mrs Potter sought to rely on s 32 LA 1980, arguing that as a result of deliberate concealment by Canada Square the limitation period did not start to run until she first found out about the commission in November 2018.

Previous decision

At first instance, Mr Recorder Rosen QC found that Canada Square’s non-disclosure of the commission was deliberate so s 32 LA 1980 did apply and therefore, the limitation period had not started to run until November 2018.

S 32 LA 1980 includes:

  • S 32(1)(b) LA 1980, which provides that, where any fact relevant to the claimant’s right of action has been deliberately concealed by the defendant, limitation does not begin to run until the claimant has discovered the concealment or could with reasonable diligence have discovered it.
  • S 32(2) LA 1980, which provides that for the purposes of s 32(1)(b), deliberate commission of a breach of duty in circumstances where it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty.

Mrs Potter pleaded reliance on both limbs of s 32 LA 1980.

The Recorder accepted Mrs Potter’s evidence that Canada Square had never mentioned commission at the time the PPI Policy was sold to her and that Mrs Potter only became aware that Canada Square were likely to have received or retained excessive commissions when she received advice from her solicitors in November 2018.

The Recorder also held that such non-disclosure “was intentional or at least reckless” and involved a breach of duty on the part of Canada Square.

Indeed, the Recorder held that, from when Mrs Potter entered into the loan agreement, Canada Square: “must have and did know that it was acting unfairly” and that:

“it was reasonable to expect disclosure of the existence and extent of the commissions in the interests of fairness and that the Claimant was unlikely to discover the payment of excessive commissions unless informed of it by the Defendant and/or on enquiry through lawyers.”

Canada Square appealed, unsuccessfully, to the High Court and then to the Court of Appeal.

High Court

The claim came before Mr Justice Jay in the High Court, who dismissed Canada Square’s appeal, holding that s 32 LA 1980 did apply so as to extend the limitation period.

Mr Justice Jay found that Mrs Potter could not rely on s 32(1)(b) LA 1980 by itself because (a) the non-disclosure was not an active concealment but rather a case of omission to disclose; and (b) there was no legal duty to disclose the commissions.

The appeal, therefore, turned on “the true construction of s 32(2) and, in particular, the meaning of the term ‘breach of duty’”.

Following the case of Giles v Rhind (No 2) [2008] EWCA Civ 118 (“Giles v Rhind”), Mr Justice Jay found that s 32(2) LA 1980 should be interpreted more widely, so as to cover “legal wrongdoing of any kind, giving rise to a right of action”. On that interpretation, Mr Justice Jay found that Canada Square’s continued non-disclosure of the excessive commission it received constituted a breach of duty so that Mrs Potter could rely on s 32(2) LA 1980.

Mr Justice Jay agreed with the Lower Court that Canada Square’s breach of duty was deliberate for the period between ss 140A-C CCA 1974 coming into force on 6 April 2007 and the end of the loan in March 2010. Mr Justice Jay held that, during this period, Canada Square’s deliberate decision not to do something

“in circumstances where it was obvious that the existence of the commission would not be discovered for some time” meant that there was “some degree of blameworthiness” and “unconscionable conduct”.

Having analysed the authorities as to the nature of the mental element required, Mr Justice Jay concluded that conduct which is reckless is sufficient, “as is conduct where the actor knows that what he is doing may well be a wrong but takes the risk of it being so”.

Court of Appeal

Four grounds were raised by Canada Square to argue that Mr Justice Jay was wrong to hold that s 32(2) LA 1980 could be relied on by Mrs Potter.

Ground 1 – Did the creation of an unfair relationship amount to a breach of duty under s 32(2) Limitation Act 1980?

Following the decision of Arden LJ in Giles v Rhind, the Court of Appeal determined that ‘breach of duty’ is applicable to any legal wrongdoing. It is not, therefore, restricted to a breach of duty in a tortuous or contractual sense or in the sense of breach of an equitable or fiduciary duty.

The Court of Appeal, therefore, agreed with the High Court’s decision that the creation of an unfair relationship under s 140A CCA 1974 was a breach of duty for the purposes of s 32(2) LA 1980, despite there being no duty or obligation to disclose the commission under general law or under the CCA 1974.

Ground 2 – Was Canada Square’s failure to disclose the existence and size of the commission a ‘concealment’?

The parties agreed that there was no active concealment by Canada Square.

The Court of Appeal therefore considered the following questions:

  1. if there is no active concealment, can s 32(1)(b) LA 1980 apply on the basis that the defendant has failed to disclose a fact relevant to the right of action;
  2. if so, is that limited to a case where the defendant was under a free-standing legal duty to disclose that fact; and
  • was Canada Square subject to a duty to disclose the existence and scale of the commission, sufficient for its failure to disclose to amount to concealment?

The Court of Appeal did not accept that only active steps of concealment would satisfy s 32(1)(b) LA 1980.  The Court of Appeal commented that “the statutory provision of section 32(1)(b) does not refer to a duty to disclose, it refers only to concealment”, however “the concept of ‘concealing’ something” inherently pointed to “the existence of some obligation to disclose”. The Court of Appeal went on to find that the duty to disclose does not have to be a free-standing contractual, tortious, or fiduciary duty. For the purposes of LA 1980, that obligation need only arise from “a combination of utility and morality” – the Court is not required to undertake a detailed analysis of the implied contractual terms or the scope of the tortious duties of care when considering whether s 32(1)(b) LA 1980 is satisfied.

The Court of Appeal noted that “section 32(2) was intended to extend the scope of section 32(1)(b) to provide an alternative and in some cases easier means of establishing the facts necessary to bring the case within section 32(1)(b)”.  When considering question (iii), the Court of Appeal disagreed with Jay J’s earlier decision that Mrs Potter could not rely on s 32(1)(b) and instead found that:

“the obligations to act fairly imposed on Canada Square by section 140A were sufficient to mean that their failure to disclose the commission amounted to a concealment of that commission within the meaning of section 32(1)(b)”.

Grounds 3 and 4 – Was Canada Square’s concealment ‘deliberate’?

In order to establish that the concealment was ‘deliberate’, Mrs Potter had to show that Canada Square had “the necessary mental element in respect of the fact that their conduct gave rise to a breach of duty” for the purposes of s 32(2) LA 1980 and realised “that they should have told [Mrs Potter] about the commission and decided not to tell her” for the purposes of s 32(1)(b) LA 1980.

There are four potential tests to establish the mental element needed for the concealment to be ‘deliberate’: (i) actual awareness of wrongdoing; (ii) subjective knowledge including wilful blindness; (iii) recklessness with both a subjective and objective element; and (iv) recklessness with a subjective element only.

The Court of Appeal held that recklessness with both a subjective and objective element would be sufficient to establish that concealment was deliberate.

This test for recklessness with a subjective and objective element was described by Lord Bingham of Cornhill at [41] of R v G and Anor [2003] UKHL 50, [2004] AC 1034. Lord Bingham explained that a person acts recklessly with respect to a circumstance when he is aware of a risk that it exists or will exist (‘subjective element’) and it is, in the circumstances known to him, unreasonable to take the risk (‘objective element’). This test is referred to as the ‘working definition of recklessness’.

As the subjective element in this case could only be inferred from surrounding circumstances, the Court of Appeal stated that the line between the subjective and objective elements in this case is “less distinct” than in other circumstances.

The Court of Appeal considered whether there were any warning signs of unfairness in this case. While accepting that the ICOB Rules did not require disclosure of commission, the Court of Appeal held that “there were plenty of warning signs” that non-disclosure could give rise to unfairness such that Canada Square “must have appreciated that there was a risk at least after April 2008 that the credit relationship … would be regarded as unfair”.

The Court of Appeal also reflected on other factors that would affect the reasonableness of taking the risk (such as the difficulty or expense of avoiding the risk, or a countervailing risk of harm to the claimant) but concluded that there was “no reason why a reasonable person, apprehending the risk that Canada Square must have apprehended, would have decided not to disclose the commission to Mrs Potter”.

The Court concluded that Canada Square deliberately concealed from Mrs Potter a fact, namely the existence and extent of the commission they received, that fact being relevant to her right of action under s 140A-D CCA. The period of limitation did not therefore commence until she discovered the concealment in November 2018. Further or alternatively, she could rely on s 32(1)(b) because Canada Square deliberately committed a breach of their duty towards her under s 140A in circumstances where that breach was unlikely to be discovered for some time.

Supreme Court

Canada Square has brought a further appeal to the Supreme Court, asking it to decide:

  1. the meaning of ‘deliberate’ – whether recklessness is sufficient, or actual knowledge is required; and
  2. the meaning of ‘conceal’ in this case – does this require the defendant to have breached a legal duty to disclose?

The appeal was heard on 14 and 15 June 2022 and the Supreme Court judgment is eagerly awaited.

Comment

S 32 LA 1980 is intended to ensure that the limitation period does not time-bar a claimant whose ignorance of the relevant facts is due to the improper actions of the defendant. While its application is straightforward in relation to an intentional breach of a legal duty, this case highlights the difficulties in establishing the measure of those actions in the absence of an express legal duty on the defendant.

The decision by the Supreme Court should clarify the meaning of “deliberate concealment” under s 32 LA 1980, determining both the basis of the duty and the nature of the mental element required to establish that the concealment was deliberate.